New ‘Corzine Rule’ For Hedge Funds Sets Tongues Wagging

Despite widespread support for the rule, questions are being raised.

As regulators seek to implement new rules in the wake of the MF Global scandal, one proposal is gaining more traction than others: And it has a moniker few could argue with: Regulators are dubbing it the ‘Corzine Rule.’

The proposal named after former MF Global CEO Jon Corzine would require a futures-firm principal to sign off before certain large transfers of customer funds are made, according to an article
in the Wall Street Journal.

From the Wall Street Journal:

* Under 'Corzine rule,' one of a futures firm's principals must approve any money moved out of customer-segregated funds, if it is more than 25% of the firm's excess segregated funds.
* Regulators would be notified 'immediately.'
* Exchanges and regulators that have approved the idea include National Futures Association, CME Group and IntercontinentalExchange.

Still, despite widespread support for the Corzine Rule, questions are being raised, such as how exactly exchanges would be able to stop managers from actually moving the customer money. Some are also debating whether rule makers should pass new policies before a full explanation has been offered as to why money went missing at MF Global, the WSJ reports.

Regulators are still looking for an estimated $1.6 billion missing from MF Global customer accounts.

According to the Wall Street Journal, a CME spokeswoman says exchange officials "fully support" being notified when a futures brokerage makes a big transfer.

From the Wall Street Journal:

It "conceptually supports" the idea of restricting customer money transfers before the previous day's segregated funds levels are reported, but "more work needs to be done to vet the idea," the spokeswoman added.
Some industry officials say requiring more approvals for big transfers from customer accounts could help confidence while other changes are contemplated. "Most firms probably do it already," said Gary DeWaal, general counsel for futures brokerage firm Newedge Group. "To require it isn't a bad idea."

Melanie Rodier has worked as a print and broadcast journalist for over 10 years, covering business and finance, general news, and film trade news. Prior to joining Wall Street & Technology in April 2007, Melanie lived in Paris, where she worked for the International Herald ... View Full Bio

How about the simplified Corzine rule: "When money is transferred out of customer accounts, every principal of the firm is immediately jailed at a high-security prison, and remains there until the money is replaced."